4 Reasons India Will Remain An E-Commerce Hotbed

Alibaba’s Jack Ma planning to create an e-commerce ‘universe’ in India, to Flipkart raising a huge funding, and Amazon making billion dollar investments, everyone is eyeing the e-commerce pie. Online shoppers are spoilt with choice today as etailers are coming up with all sorts of innovative strategies to meet their demands. In other words, India is becoming a rich e-commerce destination.

According to the latest report by IAMAI and IMRB International, the e-commerce industry in Indiareached a value ofRs 81,525 crore (US$13.5 billion) in 2014. Experts believe the trend is here to stay.

Here are a few reasons why India will continue to be an e-commerce hotbed in the coming years.

1. Smartphones driving growth

India is the second largest mobile phone market with more than 930 million customers and is expected to grow rapidly in the coming years. With the huge market potential offered by smartphones, companies such as Snapdeal, Flipkart, Myntra, among others, have already launched mobile applications. Increase in the use of Mobile wallets and with more online retail stores are opening up, making way for more employment.

“The growth in internet usage in India, largely on mobile devices, is the key driver for e-commerce growth. Specifically for fashion, the non-availability of the latest brands in Tier-II and Tier-III cities has led to high interest in online shopping,” Myntra Chief Revenue Officer Prasad Kompalli said in a recent interview.

2. Rise of classifieds/online service market

Besides travel etailing and other sectors, classifieds market grew remarkably. The value of this market is pegged at Rs 896 crores (US$1.4 million) as of December 2014. Competing in the digital commerce sphere, online service market grew with a CAGR of 73 percent since 2010. Among online ticketing services, online commuting, online food and grocery delivery system, the food retail sector saw a boom of 40 percent over the last year, and the estimated value of this segment is Rs 350 crores (US$0.5 million).

3. ‘Customer’ is the mantra

According to a PwC study, with improvement in infrastructure such as logistics, broadband and internet-ready devices, the number of consumers making purchases online will significantly increase. E-commerce companies are ready to do anything to woo customers in the crowded marketplace. Free home Delivery, deals, discounts, and offers of such have given a boost to this industry.

Besides companies are looking to strengthen their back-end and service delivery to retain and attract more customers. The report added that between 2017 and 2020, the e-commerce industry could spend around 2-6 percent of the revenue on warehousing and sortation centers, which would translate to $450-900 million.

The industry is expected to spend an additional $500 million to $1 billion on logistics functions, leading to a cumulative spend of $950 million to $1.9 billion till 2017-20.

Currently, over 25,000 people are employed in e-retailing warehousing and logistics. It is estimated that there will be an additional employment of close to 1,00,000 people in these two functions alone by 2017-20, the study said.

4. As everyone’s loving it

Today almost every other player is eyeing the e-ommerce space. In 2014, the sector attracted the attention of investors, including top global firms and leading Indian industry leaders like Azim Premji and Ratan Tata and brands such as Flipkart and Snapdeal are growing over global players like Amazon and e-bay. Even smaller ones such as Olacabs, Quickr and Myntra among others have strengthened their foothold. Indian e-commerce market has been a land of opportunities for VC/PE investors from Tiger Global, Sequoia, DST Global, Soft Bank and Sofina to name a few. It has been predicted that this year alone, the sector has secured over $3.9 billion investment from VC/PE and internal funding in the country.

The government too is bullish about e-commerce growth. PM Narendra Modi’s Digital India initiatives is further expected to boost e-commerce in India. The introduction of low priced smartphones and 2G/3G/4G networks is enabling internet access to even the remotest corners of the country. The smart city concepts are expected to improve infrastructure of the rural areas and tier II and III cities.

Several studies also predict, e-commerce will pass physical store sales in only some 4-5 years. As Knight Frank India CMD Shishir Baijal commented on the growth, “The e-commerce industry is booming like never before and this coupled with high disposable incomes have led to a spurt in the internet culture that aims to change the dynamics of the brick and mortar modern retail segment.”

There’s no stopping this vibrant segment, which is expected to surpass almost every other sectors in the country in the coming months.

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